Chinese Economy Is Under Inflation Pressure ...

Inflation Risks Remain Threatening the Chinese Economy 

The Chinese economy released a series of important fundamentals today showing that inflation risks remain threatening the economy as consumer prices continued to accelerate to the fastest pace in more than three years, along with industrial production still rebounding, while retail sales advanced on rising domestic spending, pushed China's government to move to increase the rates by 25 basis quarter. 

The Chinese consumer price index reading for the year ended May, which increased to 5.3%, more than a previous 5.3% a year earlier, while the market's expectations estimated of 5.5%.

Moreover China's PPI (YoY) released with an actual reading 6.8% during the year ended May, came inline with the last year reading, and the actual reading came above the analysts' forecasts that referred to 6.5%.

Higher inflation is the most pressing problem that facing monetary policy maker in China, where the government is trying to contain the fastest inflation during the next three years without hurting the economic growth, so we can see that the government in embarrassing situation to keep the economic growth on the track.

The monetary policy makers are trying to get any solution to curb inflation gains that has negative results on the economic expansion, while the People’s Bank of China raised last month its interest rates for the fourth time Since October, as China continues its battle to control rising inflation, where the People’s Bank of China said on Tuesday that the benchmark 1-year deposit rates will be hiked by a quarter percentage points to 3.25 percent, and 1-year lending rates will be also hiked by 25 basis points to 6.31%.

During the next period, China will crack down new measures to curb growing inflation rates through following increases in interest rates and bank reserve requirements with a faster pace of appreciation in the nation's currency. 

In the first three months, China's Gross domestic product has expanded 9.7%, faster than expected rate, indicating an economical expansion supported by the improved exports rates in China, along side the increase of row materials and energy prices enabled the Chinese companies to generate more profits. 

This fast pace economical expansion supported the consumer price index (CPI) to accelerate near the fastest pace in more than two years, above the government’s target, pushed the government to move to rise interest rate for the fourth time since October 2010. 

Meanwhile, economic growth in China may retreat during the second quarter of this year as the government tightened monetary policy and cracked new stimulus to cool inflation gains, caused to slow manufacturing sector. 

Yet, the Chinese currency (Yuan) has increased to the highest level in four days as the inflation accelerated, adding that the PBOC is to increase the rates during the next meeting to keep inflation risk at a secure area in the 2nd half of this year.